Tax Reform's Conversation Starter

I've been rattling off a canned two-line description of the restrictions put on the work of the President's Advisory Panel on Tax Reform for so many months now, that I've stopped recognizing the restrictions for what they are.

If you've been following the work of the panel since President Bush assembled the nine-person group in January, the gist of those restrictions is probably familiar. Charged with submitting reforms to the tax code aimed at making the system "simpler, fairer and more oriented to economic growth," the panel was also instructed to keep its proposals revenue-neutral. That "revenue-neutral" bit in particular I've been tossing off without a great deal of thought.

The requirement for consistent revenues makes sense, theoretically eliminating cash flow concerns and avoiding the pitfalls of any plan that could be construed as a tax hike. But in setting such a requirement, there's also an assumption the federal government cares about fiscal responsibility.

A staple of any public comments from Comptroller General David Walker has been a doomsday snapshot of the nation's worsening financial condition and long-range fiscal outlook. Worrisome deficits that could affect the country's economic livelihood seem to be converging as the federal budget deficit, the balance-of-payments deficit, and personal savings deficits all continue to grow.

Walker and his Government Accountability Office have indicated they seem to be heading towards a refusal to vouch for the accuracy and completeness of the government's fiscal report for a ninth year in a row. According to the GAO, in 2004, the government's deficit averaged more than $1 billion every day. Including commitments to programs such as Social Security and Medicaid, the government's obligations total more than $43 trillion.

The mid-October news that the government had spent "only" a projected $319 billion more than it collected in revenue during the 2005 fiscal year was greeted as a triumph. Measured strictly by dollars, the amount is the third largest shortfall in history, trailing only the 2003 and 2004 fiscal years. But showcased as 2.6 percent of the gross domestic product, the figure was well under deficits run in the 1980s as a percentage of the economy and more than $100 billion less than the shortfall projected in February.

It's not an attractive balance sheet. I doubt any self-respecting member of the Fortune 500 could put such a spin on their business. The tax panel could have been given the opportunity to confront some of the problems of the country's fiscal reality. Working to remain revenue-neutral removes a lot of options from the table without ever broaching the conversation.

Now, 10 months after the tax panel's work started, after a dozen hearings, testimony from nearly 100 witnesses and reviewing thousands of written comments, the buzz out of Washington even before the submission of the two proposals by the nonpartisan group has been mostly cautionary quotes about the partisan battle facing actual implementation of any of the ideas.

The proposals -- the first pushing for major simplification of the current income tax system and a second recommending changes for businesses that lead to an indirect tax on consumption -- were submitted to Treasury Secretary John Snow. The tax-writing House Ways and Means and Senate Finance Committees have pledged to also examine the recommendations. Meanwhile, the members of the panel have been making the rounds of the cable talk shows, urging politicians to look at the redesigns of the system in their entirety before dismissing anything as a political impossibility.

Maybe it's simpler, maybe it's fairer and maybe it's more oriented to economic growth -- all selling points on their faces -- but the panel's work may have been doomed as an exercise in futility. President Bush ostensibly selected the advisors as a group capable of out-of the-box thinking. It's too bad he had to set those revenue-neutral walls right from the get-go.

After months of work, the panel has to sell a plan that's capable of being visionary only to a point, and in the face of poor timing that means personal attention from the president is unlikely, and possibly unwanted. If the proposals were truly meant to be the start of a groundbreaking discussion, and result in revolutionary changes at all comparable to those President Reagan pushed through in 1986, the panelists' work and ideas shouldn't have been handicapped from the start.

Both proposals are well thought out. But that only leads me to wonder what might have been.

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